LAW OF CONTRACT ASSIGNMENT

NAME - SMRITI SINGH

CLASS- LLB 3 YEARS
SECTION - A ROLL NO- 58

Q. All contracts are agreement but all agreements are not contracts.

A contract is a legally binding agreement or relationship that exists between two

or more parties to do or abstain from performing certain acts. There must be
offer and acceptance for a contract to be formed. An offer must be backed by
acceptance of which there must be consideration. Both parties involved must
intend to create legal relation on a lawful matter which must be entered into
freely and should be possible to perform.

Definition of contract
According to section 2(h)
of the Contract Act 1872:
” An agreement
enforceable by law is a
contract.”
A contract therefore, is an
agreement which creates a
legal obligation i.e., a duty
enforceable by law.
From the above definition,
we find that a contract
essentially consists of two
elements:
(1) An agreement and (2)
Legal obligation i.e., a
duty enforceable by law.
Example;
A promises to sell a horse
to B for Rs. 1,00,000 , and
B promises to buy horse at
that price.
Definition of contract
According to section 2(h) of the Contract Act 1872:
” An agreement enforceable by law is a contract.”
A contract therefore, is an agreement which creates a legal obligation i.e., a duty
enforceable by law.
Thus, a contract essentially consists of two elements:
(1) An agreement and (2) Legal obligation i.e., a duty enforceable by law.
Example: A promise to sell a horse to B for Rs. 1,00,000, and B promises to buy
horse at that price.
All contracts are agreements:
For a Contract to be there an agreement is essential; without an agreement, there
can be no contract. It could will be said, “Where there is contract, there is
agreement without an agreement there can be no contract”
What is agreement?
As per section 2 (e) of Contract At 1872:
” Every promise and every set of promises, forming the consideration for each
other, is an agreement.” Thus, it is clear from this definition that a ‘promise’ is an
agreement.

What is a ‘promise ‘?
The answer to this question is contained in section 2(a) and 2(b) provides that
When one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal
“When one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.” And when the person to whom the
proposal is made signifies his assent there to, the proposal is said to be accepted.
A proposal, when accepted becomes a promise. The person who making the
proposal is called- “promisor” and the person accepting the proposal called
“promisee”.
Section 2 (d) provides the definition of consideration. According to this section
the definition of consideration is as follows: -
“When, at the desire of the promisor, the promise or any other party/person has
done or abstained from doing, or does or abstains from doing, or promise to do
or to abstain from doing, something such act or abstinence or promise is called a
consideration for the promise”.
But if under section 23 of the Contract Act, such consideration is forbidden by
law, if, is of such a nature that, if permitted, it would defeat the provision of any
law, or, is fraudulent; or
Involves or implies injury to the person or property of other, or the Courts
regards it as immoral; or opposed to public policy.
Section 2(e) provides that every promise and every set of promises, forming
consideration for each other, is an agreement.

All agreements are not contracts

An agreement to become a contract must give rise to a legal obligation. If an
agreement is incapable of creating a duty enforceable by law. It is not a contract.
Thus, an agreement is a wider term than a contract.

Agreements of moral, religious or social nature e.g., a promise to lunch together

at a friend’s house or to take a walk together are not contracts because they are
not likely to create a duty enforceable by law for the simple reason that the
parties never intended that they should be attended by legal consequences.
 On the other hand, legal agreements are contracts because they create legal
relations between the parties.
Example: -
(1) A invites B to dinner. B accepts this invitation but does not
attend the dinner. A cannot sue B for damages. It is social agreement because it
does not create legal obligation. So, it is not a contract.
(2) A promise to sell his car to B for one million. It is legal agreement because it
creates legal obligations between the parties. So, it is a contract.
According to section 10 of the contract act 1872, “All agreements are contracts if
they are made by the free consent of the parties, competent to contract, for a lawful
consideration and with a lawful object and not hereby declared to be void.
Thus, an agreement becomes a contract when at least the following conditions
are satisfied: -
1-Free consent
2-Competency of the parties
3-Lawful consideration
4- Lawful object

So, agreement is the first step of contract. But after making agreement, it may be
enforceable by law or may not be enforceable at law. If that agreement is enforced by
law, then it will be treated or turned into contract, but if the agreement is not enforced
by
law that will not be treated as a contract but merely an agreement. So, all contracts are
agreement, but all agreements are not contract.

Q. Define an offer and enumerate the essentials of a valid offer

OFFER
According to section 2(a) of the Contract act, an offer/proposal is: When one person
signifies to another his willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other to such act or abstinence, he is said to
make a proposal.
1. Offer must be communicated to the offeree. Mode of communication could be any
but should be reasonable. An offer must be clear, specific and capable of being
understood.
2. An offer should be lawful and not to do something illegal.
3. Offer can be express or implied. An express offer is one which is made in words,
Implied: whereas an implied offer is inferred from the conduct of the offeror. In
implied offer
what matters is whether the offeror had any intention to make an offer or not.
4. An offer can be revoked at any time before it’s acceptance by the intended
acceptor.
5. An offer must be made with an intention to get acceptance thereto.
Fundamentals of valid offer: -
1) May be expressed or implied:
It may be in expressed form or implied form
a) Expressed: By words: It could be in the following forms.
i) Written ii) Oral
b) Implied: By Conduct the offer is made. Example: Wind Screen cleaner starts
cleaning the screen of a car on a road at a traffic signal stop light.
2) Must create legal relations
Offer should not be of social nature; it must have an intention to create the
legal relation. Example: Father offering pocket money to son has not created
legal relationship.

3) Definite & Clear

The terms and conditions of the offer must be certain and clear.
Example: “A” offers Sale of one car out of two but did not clarify which one.
4) Different from invitation to offer
The offer is different from the invitation to offer. They look alike but are
different. The person making invitation to offer does not make offer but
invites other party to make offer. Example: Displaying of goods for auction. It
is not an offer but an invitation to offer. The offer in this case will be a bid from buyer.
5) Specific or General
a) Specified: It is an offer made to a specified person or group.
Example: A offers B to buy his flat.
b) General: It is an offer made to public in general.
Example: A publishes in newspaper that he will reward Rs. 5,000/- who will
return his lost mobile phone.
6) Must be communicated to Offeree

The Offer is valid if it is communicated to the offeree, if it is not communicated to the

offeree, then it cannot be accepted.

Example: “A” finds a bag and does not know that there is a reward
announced in this respect. “A” informs the owner. Now “A” cannot recover
reward as he was not aware of it.
Leading Case- Lalman Shukla vs Gauri Dutta (1913)
It was held that mere knowledge of an offer does not imply acceptance by the
offeree
7) Should not contain negative condition
It should not contain any such condition, the non-fulfilment of which will be
considered as acceptance of the offer.
Example: One cannot make an offer that if the offeree does not accept to
certain date then offer will be considered as accepted.

(8) May be subject to any condition

There may be a condition included in the offer.
Example: “A” makes an offer and includes a condition that the acceptance
should be given through telephone but “B” sent it by letter. In this case A can
reject such acceptance
(9) Must not contain cross offer
Similar Offers by two parties to each other, in ignorance to each other’s offer
are called Cross offer. The acceptance of cross offer is not valid.
Leading case: Tinn V. Hoffman & Co. (1873)
Example: A wrote to B offering to sell him certain goods. On the same day, B wrote
To A offering to buy the same goods. The letters crossed in the post. There is no
concluded contract between A & B.

Q. Distinguish between offer and invitation to make a valid offer

An 'invitation to treat' is inviting parties to create a contract. It represents the
preliminary stage of negotiation. A person making an invitation to treat does not
intend to be bound as soon as it is accepted by the person to whom the statement is
addressed. An invitation to treat is always as a fixed price and a choice; it is not an
offer to sell. Newspapers and catalogues are examples of invitations to treat.

An 'offer' is defined as a statement of willingness where the person who is making

the offer(offeror), promises to be bound in a contract if the terms of the offer are
accepted by the person accepting the offer (offeree). An individual or
organisation can make an offer to another individual (bilateral) another
company or to anyone in the world (unilateral). An offer can be “express"- for
example if A tells B he will sell his radio for Rs.1000. An offer can also be "implied”
from conduct - for example when A brings goods to the supermarket
cash desk

It is tough to differentiate between an invitation to treat and an offer as it depends on

the intention of the party making an invitation to treat which is shown in
Pharmaceutical Society of GB v Boots Cash Chemists Ltd [1932] where the
defendants changed the format of their shop from a counter service to self-service.
The Queen's Bench and the Court of Appeal rejected this argument. The offer
originated from the customer as soon as the item was put in the basket. The
defendants remained free to accept or reject the offer. If they did accept, then this
took place at the cash desk in the presence of a registered pharmacist, therefore
there was no breach of the Act. The display of goods on the supermarket's shelves
was merely an invitation to customers to make offers to buy.

Parties can be invited through advertisements such as magazines or newspapers-

Partridge v Crittenden [1968]. This is the famous case in which the plaintiff had put
an advertisement in a newspaper for hens. The plaintiff was charged with illegally
offering for sale a wild life bird conflicting the Protection of Birds Act 1954. It was
held that the advertisement was an invitation to treat rather than an offer for sale. As
a result of this the plaintiff was not guilty of the offence. The principle from Boots
cash chemists was also used in Fisher v Bell [1961] where a shopkeeper displayed
a knife in his window and under the Offensive Weapons Act 1959, it was illegal to
offer for sale offensive weapons. The Court of Appeal held that the display of the
knife in the window was an invitation to treat rather than an offer for sale therefore no
offence was committed.

One type of offer is- Bilateral offer. This is an agreement by an exchange of

promises between two parties- Thornton v Shoe Lane parking Ltd [1971]. The
plaintiff went to park his car in the defendant's automatic car park. A notice was
visible at the entrance stating the charges and a sign-'cars parked at own risk'.
Plaintiff took a ticket from the machine. The ticket stated the time of arrival and small
print that it was 'issued subjects to conditions displayed on the premises ‘It was held
the ticket came out to late since contract was concluded when the motorist drove up
to the machine. Also, an automatic ticket machine was an offer, rather than an
invitation to treat.

A unilateral offer is an offer open to the world at large. In the famous case of Carlill
v Carbolic Smoke Ball Co. Ltd [1893], the defendants sold a smoke ball and put an
advertisement in the newspaper claiming they would pay 100 pounds to anyone who
contracted influenza after using the smoke ball for a specified period. The plaintiff
contracted influenza after having purchased and used as directed and claimed the
reward. The defendants argued that it was impossible to contract to the whole world,
nevertheless this was rejected by the Court of Appeal. The court had identified that
for an advertisement to be viewed as an offer, it has to be very specific. In this case
there were other implications, for example 1000 pounds were placed in a bank
account to show that it was serious, this highlighted the validity of the offer. We see
the more specific an advertisement the more likely it is to be seen as an offer.

Overall, it is extremely important to distinguish the differences between invitation to

treat and offer, if the differences are not recognized the whole meaning and purpose
could lead in to a different understanding which is incorrect.

Q. Intention to create legal relationship.

Intention: -
- If two or more parties make an agreement without any intention of being
legally bound by it, that agreement will not be regarded by the courts as a
contract.
- It is important to remember with regard to this issue that the courts assess the
parties’ intentions objectively.
- So, if to onlookers their behaviour or words would suggest they intended to be
bound, the fact that one secretly had reservations is irrelevant.
- As far as the intent to be legally bound is concerned, contracts can be divided
into:
a. Social and domestic agreement
b. Commercial transactions on the others
- Where an agreement falls into the domestic and social category, there
is a rebuttable presumption that the parties do not intend to create legal relations.

- The reverse applies in commercial agreement, where it is presumed that

the parties do intend such an agreement to be legally binding.

- Again, this principle can be rebutted if there is evidence that the parties did not
intend their agreement to be legally enforceable.
Social and Domestic Agreement
Husband and Wife
a) Balfour v Balfour (1919): Where a husband and wife who are living together
as one household make an agreement, courts will assume that they do not
intend to be legally bound, unless there is evidence to the contrary.
b) There is another scenario in Meritt v Meritt (1969)
- Lord Denning pointed out that the presumption applied in
Balfour v. Balfour, that an agreement between husband and wife was a
‘a family agreement’, was not valid where the parties had separated or were
about to do so.
- In such circumstances the parties ‘do not rely on honourable understandings’,
but ‘bargain keenly’, and it could be safely presumed that any agreement
between them was intended to be legally binding.

Parent and Child

Jones v Padavatton (1969): Agreement of a domestic nature between parents and

children are also not to be intended to be binding, though again the presumption can
be rebutted.

Social Agreements in General

- The rebuttable presumption that an agreement is not intended to

be legally binding is also applied to social life, for relationships between
people who are not related.
- However, in Simpkins v Pays (1955), the court upheld the claimant’s claim
that claimant can claimed a third of the sum as his share of the prize,
considering that they had all contributed to the competition with the
expectation that any prize would be shared.

Commercial Agreements
- There is a strong presumption in commercial agreement that the parties
intend to be legally bound, and, unless there is very clear contrary
evidence, this presumption will not be rebutted.
 - Case law: Esso Petroleum Ltd v Customs and Excise Commissioners
(1976)
- In this case, Esso ran a sales promotion in which ‘coins’ showing
members of the England football squad for the 1970 Cup were to begiven
away free, one with every four gallons of petrol.
- The scheme was advertised on TV and by posters at filling stations.
- The case arose when for tax purposes it became necessary to decide
whether or not there was a contract of sale
- The HOL held, by a majority, that the coins were not being sold and so were
not liable for tax, but that there was intent to create legal relations.
- Lord Simon pointed out that ‘the whole transaction took place in a setting of
business relation’, that it was undesirable to allow companies to make
promises in advertisement that they were not bound to keep, and that Esso
knew that, despite the coins’ negligible monetary value, they would be
attractive to motorists and Esso would therefore derive considerate
commercial benefit from scheme.

Exceptions to Commercial Agreement Presumption:-

1. Mere Puffs’
- Where an offer is extremely vague, or clearly not intended to be taken
seriously, the law will not give its acceptance contractual effect.
- In Weeks v Tybald (1604), the defendant announced that he would give £100
to any suitable man who would marry his daughter, but it was held that his
words were not intended to be taken seriously and his promise was not legally
binding.
- This principle is sometimes applied to the extravagant language
used in advertising and sales promotions, but only if there is no evidence of
contractual intent.

2. Ambiguity
- Where the words of a business agreement are ambiguous, the courts will
favour the interpretation which suggests that the parties did intend
to create legal relations, and therefore find that there is a contract.
 - Edwards v Skyways Ltd (1964)
- Claimant was a pilot employed by the defendants.
- As part of a redundancy agreement, Skyways promised to make an
exgratia payment of a specified amount in return for Mr Edwards
not claiming his full pension rights.
- Later, the company refused to make the payment, claiming that the words
‘exgratia’ showed that there was no intention to create legal relations.
- The Court of Appeal rejected this argument, stating that this was a
commercial agreement and there was therefore a strong presumption in
favour of creating legal relations. The words ‘exgratia’ merely signified
that the employers were not admitting any pre-existing liability to make
the payment, it did not mean that they were not bound by the agreement.
3. Collective Bargaining Agreements
- There is one exception to the rule that the parties to a commercial agreement
are presumed to intend to be legally bound. Under a collective bargaining
agreement, an employer negotiates pay and conditions with the
workforce as a whole (usually represented by a trade union), rather than on
an individual basis. Such agreements are binding in most countries, but not so
in Ford Motor Co Ltd. v. Amalgamated Union of Engineering and
Foundry Workers it was held that in English law such as agreement was not
intended to be legally binding.

Importance of Intention to Create Legal Relations

In practise, it is rare for contract cases to involve problems with the requirement of
intention to create legal relations. This is largely because in many of the situation in
which the issue might be raised, particularly domestic and social ones, there is no
consideration. The courts will only consider intent to create legal relations
if the offer and acceptance and consideration have already been established

Q. Case comment on Carlill v. Carbolic Smoke Ball Co.

A Newspaper advert placed by the defendant stated: -

“£100 reward will be paid by the Carbolic Smoke Ball Company to any person who
contracts the influenza after having used the ball three times daily for two weeks
according to the printed directions supplied with each ball… £1000 is deposited with
the Alliance Bank, shewing our sincerity in the matter."

Mrs Carlill purchased some smoke balls and used them according to the directions
and caught flu. She sought to claim the stated £100 reward.

The defendant raised the following arguments to demonstrate the

advertisement was a mere invitation to treat rather than an offer: -

1. The advert was a sales puff and lacked intent to be an offer.

2. It is not possible to make an offer to the world.
3. There was no notification of acceptance.
4. The wording was too vague to constitute an offer since there was no stated time
limit as to catching the flu.
5. There was no consideration provided since the 'offer' did not specify that the user
of the balls must have purchased them.
Held:
The Court of Appeal held that Mrs Carlill was entitled to the reward as the advert
constituted an offer of a unilateral contract which she had accepted by performing
the conditions stated in the offer.

The court rejected all the arguments put forward by the defendants for the
following reasons:

1. The statement referring to the deposit of £1,000 demonstrated intent and therefore
it was not a mere sales puff.

2. It is quite possible to make an offer to the world.

3. In unilateral contracts there is no requirement that the offeree communicates an

intention to accept, since acceptance is through full performance

4. Whilst there may be some ambiguity in the wording this was capable of being
resolved by applying a reasonable time limit or confining it to only those who caught
flu whilst still using the balls.
5. The defendants would have value in people using the balls even if they had not
been purchased by them directly.

Q. What are standard form contract and its advantages and disadvantages.
Explain the protective devices given by the court to protect the common man
from being exploited. Explain the above in the light of case laws.

INTRODUCTION

In this technological age where contracts are made in thousands of numbers by a

company on daily basis. It has made difficult for a court to come at help the weaker
party. As in practical aspect general consumer or a person who signs a contract
does not read terms and conditions which are written in contract. Even if they read it
they won’t understand most of the things about the terms and conditions of the
contract, so it becomes difficult to protect the weaker party.

Standard form contracts are intended to make common agreements between

suppliers and consumers more efficient and less costly. For example Signing up for
your email, contracts of insurance company, lease agreements, construction
contracts and divorce papers etc. To understand the following facts about standard
form contracts:

1. They are meant to help both the supplier and consumer.

2. They can give suppliers or vendors an unfair advantage.
3. The regulations are formed as they have to provide some protection to the
consumer.

Non-negotiated pre-written agreements are called standard form contracts and also
called as Boilerplate contracts, Contracts of adhesion and “Take it or leave
it" contracts. The party with the most bargaining power controls the terms of the
agreement. These terms are usually non-negotiable by the customer or end
user. This is because these contracts are usually written by corporate lawyers
without the customer or the business being involved. This situation carries a high
potential of giving the vendor an unfair advantage because it highlights
the attractive portions of the contract and hides the drawbacks in the fine
print.

Legal Status of Standard form of Contract (SFC)

Indian contract system does not have any specific differentiation between SFC and
general contract, as the SFC is a kind of contract which is govern by the laws
provided for general contracts in Indian contract Act 1872.

Due to heavy industrial development this kind of contract has become common and
are executed in large numbers now a days. This had led to demand of formulation of
fledge rules on standard form of contract to protect the rights of the weaker party in
standard form of contract.

However, in many countries judiciary is empowered to apply the principle

of natural justice and give good justice to the weaker party as it is in Israel there are
certain provisions that may be cancelled by court of law. Apart from courts some
legislatures have also made laws related to this kind of contract. There
are certain rules made by the legislature which seems to be unreasonable like in
U.K, sec 3 of Unfair Contract Terms Act 1977 limits the ability of drafter on
consumer or limits the provision of standard form of contract to the Drafter.

Issues: -

1. They don’t read the contract clauses thoroughly as even after reading they don’t
find it worthy of giving so much time in writing down the clauses.

2. In certain contracts, there are clauses like if you accept the given term sand
condition then they will tell the full terms and condition of the contract.

3. SFC kind of contract the party generally focus on the price mentioned in the
contract; he doesn’t really care about other different clauses which might be
exploitative in nature.

4. Manufactured pressure on the party is created by another party to sign SFC,

earlier all the negotiation and the terms had been discussed orally and explained to
them. So it becomes a kind of bounding on the party to sign the contract.

5. The major point SFC’s are that they are take it or leave basis, so they don’t have
any choice but to accept the contract.
Solutions: Ways to limit exploitation from SFC

It is easy to exploit the party entering into standard form of contract, there are certain
rules made to protect the interest of the weaker party. Specific procedure has
been mentioned in order to protect the weaker party in SFC contract.

1. Reasonable Notice
A reasonable notice must be given by the person delivering the document to
give adequate information about the terms and condition laid down in the
contract. This principle was propounded in the case of Henderson V.
Stevenson from House of Lords. Case facts were that, a person buy a ship
ticket on face of it only boarding place and arriving place was written on it but
on its back side there were certain terms and conditions which party didn’t see
nor anything was written on face of it to turn over and look at the back of
ticket. Simple reason given by court was that a person cannot agree to a term
if he had not seen it or is not told of it.

Notice of the terms and condition should be given before or at the time of
contract when it is to be signed. As clearly said by Lord Denning it is duty of
the party relying on a clause to its benefit to make it clear to other party the
terms and condition of contract in the famous case of Thornton V. Shoe Lan
Parking Ltd.

2. Contractual Document

The basic problem lies between identifying the document as a

contract document or as a receipt. Different between these two is, if the
document clearly explains the express and implied a condition in the document
then it is a contractual document if not then it is a receipt. The contract must be
signed by the person accepting the terms and conditions mentioned in the
document (Under section 13 of contract Act 1872)

Misrepresentation, Fraud, Mischief and other elements which makes a contract

void should not present in the contract in order to make an
agreement enforceable by law

3. Unfair terms
Courts have looked into the terms of the contract in relation to the bargaining
powers of the parties and have interfered in cases where the bargaining power of
the parties was not equal.
In Life Insurance Corporation of India v. Consumer Education and Research
Centre and others the Hon'ble Supreme Court has held that "if a contract
or a clause in a contract is found unreasonable or unfair or irrational one
must look to the relative bargaining power of the contracting parties. In dotted line
contracts there would be no occasion for a weaker party to bargain or to assume to
have equal bargaining power. He has either to accept or leave the services or goods
in terms of the dotted line contract. His option would be either to accept the
unreasonable or unfair terms or forego the service forever. With a view to have the
services of the goods, the party enters into a contract with unreasonable or unfair
terms contained therein and he would be left with no option but to sign
the contract"

In Lilly White V. Mannu-Swami this principle has been clearly explained in the
case. In this case the laundry receipt contained a condition that in case of loss or
destruction of cloth only 15% money of the market price of cloth will be returned
these clauses were held unreasonable from the court and was held that the clauses
were against the public interest.

In an Indian financial case of Seven Day Adventists Vs. M.A Uneerikutty and
Anr.MANU/ SC/3291/ 2006 it says that if any consideration of several clauses
mentioned in the contract is unlawful then agreement itself is void and the decision of
the court says that this type of case is against the public policy, if any type of clauses
violating public policy that contract is void. This doctrine is not only applicable to
harmful cases but to the cases with harmful tendencies.

In the case of contract with the government certain points must be observed in order
to prevent exploitation of the other party in the contract. As the decision from the
government had been taken in bad faith.
Decision is based on irrational or irrelevant consideration. Decision has
been taken without following the prescribed procedure in the system. If
these things are not followed diligently contract will be termed as irrelevant by the
court and party will be protected by certain clauses against exploitation of contracted
party.
4. Theory of Fundamental breach
It’s one of the tools to protect the weaker party from exploitation through this theory.
What happens in theory there is a core or fundamental of the contract which is
bounding on both parties to follow them and if that is not followed then there will be a
breach of contract. In the case of breach of contract, the weaker party will not be
bound to follow the contract in case of breach of contract by other party. Test of
fundamental breach of contract can be done through sec 11 of 1977 unfair contract
act which says the contract will be void if it will not satisfy the reasonableness of the
contract.
In case of Food Corporation of India Vs. Laxmi Cattle Feed
Industries MANU/SC/8041/2006, Supreme Court held that in case of breach of
contract, the plaintiff has to prove all the essentials of breach of contract. If the
plaintiffs not able to prove, it will not be considered as breach of contract.

5. UNCONSCIONABLE NATURE OF THE CONTRACT

Basic test of "unconscionability" of contract is whether under circumstances existing
at time of making of contract and in light of general commercial
background and commercial needs of particular trade or case, clauses involved are
so one-sided as to oppress or unfairly surprise party.
Precursors of Unconscionability: Courts of equity did not share the reluctance of
common law courts to police bargains for substantive unfairness. Though mere
"inadequacy of consideration" alone was not a ground for withholding equitable
relief, a contract that was "inequitable" or "unconscionable" one that was so unfair as
to "shock the conscience of the court" would not be enforced in equity.

In Ferro Alloys Corpn. Ltd. v. A.P. State Electricity Board and another, Supreme
Court of India refused to interfere in adhesion contract on the ground that it was not
unconscionable so as to "shock the conscience of the court"

6. INEQUALITY OF BARGAINING POWERS

Courts have strictly ruled against those standard contracts which exploit the
position of an employee vis a vis the employer. They have repeatedly held that in
case of employment contract between the employer and employee, there isa
universal tendency on the part of the employer to insert those terms, which are
favourable to him in a printed and standard form, leaving no real meaningful
choice to the employee except to give assent to all such terms. In such a
situation the parties cannot said to be in even position possessing equal
bargaining power. Where the parties are put on unequal terms the standard form
of contract cannot be said to be the subject-matter of negotiation
between the parties and the same is said to have been dictated by the party who
higher bargaining power enables him to do so.

In Superintendence Company of India (P) Ltd v. Sh. Krishan Murgai, Hon’ble

Supreme Court held that “It is well settled that employees’ covenants should be
carefully scrutinized because there is inequality of bargaining power between the
parties; indeed, no bargaining power may occur because the employee
is presented with a standard form of contract to accepts or reject. At the time
of the agreement, the employee may have given little thought to the restriction
because of his eagerness for a job; such contracts "tempt improvident persons,
for the sake of present gain, to deprive themselves of the power to make future
acquisitions, and expose them to imposition and oppression."

CONCLUSION

The standard form of contract are written in fine print with all the terms and
conditions laid down clearly in the contract. In Indian context cases
are entertained under the rules provided by Indian Contract Act, there is no any
act only made to deal with standard form of contract specifically. In this type of
contract weaker party can easily be exploited and there is no specific rule for the
prevention from this type of action by dominating party.
With the evolution of legal system, the courts had found different kinds of
method and tools to protect the basic right of the weaker party by applying the
principles of natural justice, precedent of different cases helping in protecting
interest of weaker section. As through transformation this kind of contract are
 made on daily basis in enormous number, that’s why proper scrutiny and
providing a lengthy procedure will not work best thing can be done
is to provide awareness about the rule so that the parties entering into the
contract will read the clauses and try to understand and ask question on certain
clauses if they are not able to understand it.
Take it leave it as it is the nature of the contract which leads to commencement of
certain cases in court in which there is an immediate urge to provide justice to the
weaker party who without knowing the specific clauses entered into the contract.

Q. Define what is coercion and undue influence and explain the ingredients
with the help of relevant case laws.

Coercion (Section 15)

If a person commits or threatens to commit an act forbidden by the Indian Penal
Code with a view to obtaining the consent of the other person to an agreement, the
consent in such case is obtained by coercion. In simple words coercion means
“making a person to give his consent by force or threat.”

Essential Ingredients of Coercion:

1. Committing or threatening to commit any act forbidden by Indian Penal Code,
2. The unlawful detaining or threatening to detain any property to the prejudice of
any person whatever
3. With the intention of causing any person to enter into an agreement

Chikkam Ammiraju V. Chickam Seshamma, in this case, the husband by a threat

of suicide, induced his wife and son to execute a release deed in favor of his brother
in respect of a certain proprieties claimed as their own by the wife and son. Court
held that to commit suicide amounted to coercion within the meaning of Section 15 of
the Indian Contract Act and therefore release deed was voidable.

Committing or threatening to commit any act forbidden by IPC Act forbidden

by IPC
The word act forbidden by Indian Penal Code make it necessary for the court to
decide in a civil action, whether the alleged act of coercion is such as to amount to
offence. A threat of bringing a false charm with the object of making another do a
thing amount, to blackmail or coercion. In the case of Ranganayakamma v Alwar
Setti, where the widow was obstructed from removing the corpse of her husband
until she consented for the adoption. The court held that her consent was not free
and it was coerced. It is clear that coercion is committing or threatening to commit
any act which is contrary to law.
Unlawful Detaining of Property
A consent can be said to be caused by coercion, if it is caused because of unlawful
confining or detaining of a property, or a risk to do as such.
Coercion and Duress
Under the English law, actual or threatened violence to the victim’s person has long
been recognized to amount to duress. Duress is a term applied under English
Contract Law & Coercion is a term applied under Indian Contract Law. In coercion
even third party can perform the act but in duress only the party to contract should
perform the act. In Duress, it is only applied for person and cannot detain property.
Also, coercion can be seen as the practice of putting someone under duress (i.e.,
almost like stress.) Coercion is the act of forcing, while duress is more the
consequence (or stressful feeling) that happens as a result of coercion. In this way
the extent of coercion is more extensive than duress.

Undue Influence
When one party is in a position to dominate the will of others and actually misuses
the power, then it is a case of undue influence, and the contract becomes voidable.
When all the following three conditions are fulfilled then only the situation is
considered as an undue influence: -
1. One person is in a position to dominate the will of others.
2. He misuses his position.
3. He obtains an unfair advantage

The word ‘undue’ means unnecessary, unwarranted, or more than required.

‘Influence’ means convincing the mind of another through changing his mind or
changing his will, but this influence must be undue i.e., it is not required. Undue
influence applies to a relationship which may be blood relation or some other kind of
relation i.e., fiduciary or relation based on trust. It may also arise where the parties
are in a relation of confidence or dependence which puts one of them in a position to
exercise over the other an influence which may be perfectly natural and proper in
itself, but is capable of being unfairly used.

Elements of undue influence

Section 16(1) gives the following two elements of undue influence,
1. The relationship subsisting between the parties is such that one is in a position to
dominate the will of the other, and
2. He uses that position to obtain an unfair advantage over the other.
The party who wants to rescind the contract on the ground of undue influence
ordinarily must prove both the conditions laid down in Section 16(1).
It must be proved first of all that the other party was in a position to dominate the
will of the aggrieved party. It is only after this that the question arises regarding
the second element of undue influence. In Smt. Chinnamma Verses Devanga
Sangha , it was held that it is not necessary that the person in a position of
domination must benefit himself. A benefit to a third party may be sufficient. In
this case undue influence by office bearers of a society benefiting the society
was held to be sufficient to avoid the contract.

In Subhash Chandra Das Verses Ganga Prasad Das, the Court held that, “it is
well settled that the law relating to undue influence is the same in the case of a
gift inter vivos (from one living person to another) as in the case of contract. “The
Court trying a case of undue influence must consider two things to start with
namely,
1. are the relations between the donor and the donee such that the donee is in a
position to dominate the will of the donor
2. has the donee used that position to obtain unfair advantage over the donor”

A contract cannot be set aside on the ground of undue influence when one of the
par ties is not a posit ion to dominate the will of the other, that is., when the
parties are on equal footing. Illustration (d) appended to the Section makes the
point clear, A applies to a banker for a loan at a time when there is stringency in
 the market. The banker declines to make loan except at an unusually high rate of
interest. A accepts the loan on these terms

This is a transaction in the ordinary course of business and the contract is not
induced by undue influence. In Shrimati Verses Sudhakar, AIR Bom 122, the
Court said, “Influence in the eye of law has to be contra distinguished with
persuation. Any and every persuation by one party to the other to contract
cannot lead to the inference/conclusion that such party has influenced the other
party. One may by his act or conduct convince and persuade the other party to
do a particular act and if the other party does such an act freely and of own
volition (may be to his/her disadvantage or even to his/ her peril), it cannot be
said that such act was influenced by the other.” In the present case the gift was
not held to be induced by undue influence as the gift deed was made by a
woman, though illiterate, was intelligent enough to manage her properties and
was getting agricultural land cultivated from various persons from time to time for
about two decades.

Q. Define Fraud and which are the acts that amounts to fraud and the
instances when silence amounts to fraud. Explain in the light of relevant
case laws
Fraud
According to Section 17 of the Indian Contract Act, 1872 “FRAUD” means and
includes any of the following acts committed by a party to a contract, or by his
agent, with intent to deceive another party thereto or his agent, or to induce him
to enter into the contract: The suggestion, as a fact, of that which is not true, by
one who does not believe it to be true.
- The active concealment of a fact is known as suppresio veri or suppression of
a fact.
- A promise made without any intention of performing it
- Any other act fitted to deceive.
- Any such act or omission as the law specially declares to be fraudulent.

Explanation – Mere silence as to facts likely to affect the willingness of a person to

enter into a contract is not fraud, unless the circumstances of the case are such that,
regard being had to them, it is the duty of the person keeping silence to speak, or
unless his silence is, in itself, equivalent to speech.

Essentials of Fraud
- There should be a false statement of fact by a person who himself does not
believe the statement to be true.
- The statement should be made with a wrongful intention of deceiving another
party thereto and
- inducing him to enter into the contract on that basis.

False statement of fact

In order to constitute fraud, it is necessary that there should be a statement of fact
which is not true. Mere expression of opinion is not enough to constitute fraud.
For example – A person, who is aged over 60 years and thus beyond insurable age,
deliberately makes a false statement that his age is 48 years in order to take out an
insurance policy, it amounts to fraud, and the insurer is entitled to avoid the policy.
In Edington vs. Fitzmaurice, a company was in great financial difficulties and
needed funds to pay some pressing liabilities. The company raised the amount by
the issue of debentures. While raising the loan, the directors stated that the amount
was needed by the company for its development, purchasing assets and completing
buildings. It was held that the directors had committed a fraud.

Mere silence is no fraud

It has been noted above that to constitute fraud; there should be a representation as
to be certain untrue facts. Mere silence is no fraud unless, there is duty to speak, or
his silence is, in itself, equivalent to speech.
In Keates v Lord Cadogan, A let his house to B which he knew was in ruinous
condition. He also knew that the house is going to be occupied by B immediately. A
didn’t disclose the condition of the house to B. It was held that he had committed no
fraud.
In Shri Krishan v. Kurukshetra University, Shri Krishan, a candidate for the L.L.B.
exam, who was short of attendance, did not mention that fact himself in the
admission form for the examination. Neither the head of the law department nor the
university authorities made proper scrutiny to discover the truth. It was held by SC
that there was no fraud by the candidate and the university had no power to
withdraw the candidate on that account.
Exceptions: -
- When there is a duty to speak, keeping silence is fraud.
- When silence is, in itself, equivalent to speech, such silence is a fraud

Duty to speak (Contracts of uberrimae fide)

When the circumstances of the case are such that, regard being had to them, it is
the duty of the person keeping silence to speak, keeping silence in such a case
amount to fraud. When there is a duty to disclose facts, one should do so rather than
to remain silent. There are certain contracts which are contracts of uberrimae fide
meaning contracts of utmost good faith. In such a type of contract it is supposed that
the party in whom good faith is reposed, would make full disclosure of it and not
keep silent. One instance of contract of uberrimae fedi is contract of insurance. In
such a contract, there may be certain facts which are in full knowledge of the insured
or policy holder. He must make full disclosure of such facts to the insurer or
insurance company.

In case of Srinivasa Pillai v LIC of India, it was held in this case by the Supreme
Court that contract of insurance being one of uberrimae fedi, it is normal to expect in
such a contract utmost good faith on the part of the insured. The insured is expected
to answer certain questions by the insurer and it is his responsibility to give true and
faithful answers. If the insured has knowledge of certain facts which others cannot
ordinarily have, then he should not indulge himself in suggestio falsi or suppressio
veri. When in the case of contract of insurance, where there exists a duty to disclose,
then non-disclosure of facts that are non-material to and having no bearing on the
risk undertaken by the insured, it does not render the contract voidable.

Silence being equivalent to speech

Sometimes keeping silent as to certain facts may be capable of creating an
impression as to the existence of a certain situation. In such a case, silence amounts
to fraud. Means of discovering the truth “If such consent was caused by
misrepresentation or by silence fraudulent within the meaning of Section 17, the
contract, nevertheless, is not voidable, if the party whose consent was so caused
had the means of discovering the truth with ordinary diligence”
Illustration A says to B “If you do not deny it, I shall accrue that the horse is sound”.
B says nothing. Here B’s silence is equal to speech that the horse is sound. Later if
the horse turns out to be unsound, B will be guilty of fraud.

Active Concealment [Section 17(2)]

When there is an active concealment of a fact by one having knowledge or belief of
the fact, that can also be considered to be equivalent to a statement of fact, that can
also be considered to be equivalent to a statement of fact and amount to fraud. By
active concealment of certain facts, there is an effort to see that the other party is not
able to know the truth and he is made to believe as true which is in fact not so.
Active concealment of a fact has also been considered as amounting to fraud
because in that case there is a positive effort to conceal the truth from the other
party. He is made to believe as true that fact which false. This is what is known as
suppresio veri –But if he merely keeps silence, it will not constitute fraud subject to
certain exceptions.
In case of sale of goods, the rule which is applicable is caveat emptor – or the
doctrine of let the buyer beware. It means that it is the duty of the buyer to be careful
while purchasing the goods as there is no implied condition or warranty as to quality
or fitness of goods.

Promise Made Without Any Intention to Perform It [Section 17(3)]

When a person makes a promise, there is deemed to be an undertaking by him to
perform it. If there is no such intention when the contract is being made, it amounts
to fraud. Thus, if a man takes a loan without any intention to repay, or when he is
insolvent, or purchases goods on credit without any intention to pay for them, there is
fraud. If, there is no such bad intention at the time of making contract, but the
promise doesn’t perform the contract, it doesn’t amount to fraud.
Any act or omission which any other act fitted to deceive [Section 17(4)]
Clause (4) provides that ‘any other act fitted to deceive’ will also amount to fraud.
This clause is general and is intended to include such cases of fraud which would
otherwise not come within the purview of the earlier three clauses.
Any act or omission which the law declares as fraudulent [Section 17(5)]
According to this Section 17(5), fraud also includes any such act or omission as the
law specially declares to be fraudulent. In such cases, the law requires certain duties
to be performed, failure to do which is expressly declared as a fraud.
In Akhtar Jahan Begam v Hazarilal, A sold some property to B stating in the sale
deed that he won’t be liable to B if he suffered any loss owing to A’s defective title. A
had, earlier to this transaction, sold this property to somebody else, but didn’t inform
B about it. It was held that A had committed fraud and the contract was voidable at
the option of B.
.
Statement should be meant for the party misled
It is necessary that the misleading statement should be meant for the party who is
misled. If a person is purchasing the shares of the company in the open market on
the basis of any prospectus, then he can’t sue the company later on because the
prospectus is meant for an original allottee of the shares by the company, not for the
person like the present appellant who buys the shares from the original allottee and
therefore, the promoters were not liable for fraud.

Damages for Fraud

Where a contract is induced by fraud, the representee is entitled to claim rescission
or damages or both. He would have a remedy by way of such suit, even if restutioin
integrum is not possible. The defendant is bound to make reparation for all the
damage directly flowing from the transaction. In assessing such damage, the plaintiff
is entitled to recover by the way of damages the full price paid by him, but he must
give credit for any benefit which he has received as a result of the transaction. As a
general rule, the benefits received by him include the market value of the property
acquired but such general rule is not applicable where to do so would prevent him
obtaining for the wrong suffered. In addition, the plaintiff is entitled to recover
consequential losses caused by the transaction. The plaintiff must take all
reasonable steps to mitigate the loss once he has discovered the fraud.

Q. Define misrepresentation and enumerate the essentials of

misrepresentation. Distinguish between fraud and misrepresentation.
Misrepresentation
The word representation means a statement of fact made by one party to the other,
either before or at the time of making the contract, with regard to some matter
essential for the contract, with an intention to induce the other party to enter into
contract. A representation, when wrongly made, either innocently or intentionally, is
called 'misrepresentation'. When the wrong representation is made wilfully with the
intention to deceive the other party, it is called fraud. But, when it is made innocently
i.e., without any intention to deceive the other party, it is termed as
'misrepresentation'. In such a situation, the party making the wrong representation
honestly believes it to be true.
For example, A, while selling his car to B, informs him that the car runs 18 kilometres
per litre of petrol. A himself believes this. Later on, B finds that the car runs only 15
kilometres pr litre. This is a misrepresentation by A.
Section 18 of the contract Act classifies acts of misrepresentation into the following
three groups:
- Positive assertion
When a person makes a positive statement of material facts honestly
believing it to be true though it is false, such act amounts to
misrepresentation.
- Breach of Duty
Section 18(2) says that any breach of duty which, without an intent to deceive,
gives an advantage to the person committing it, or anyone under him, by
misleading another to his prejudice or to the prejudice of anyone claiming
under him, amounts to misrepresentation. In such a case, there is no intention
to deceive, but party representing commits a breach of duty which he owes to
the other party. A breach of duty would also exist where a party bound to
disclose certain information does not do so. Such non-disclosure would also
amount to misrepresentation. For example, in a life policy, the assured does
not disclose the fact that he had previously suffered from some serious
ailments. The non-disclosure, however, innocent it may be, would entitle the
insurer to avoid the contract on the ground of misrepresentation of facts. Such
a duty exists between banker and customer, landlord and tenant and all
 contracts of utmost good faith. Such cases can also be termed as
'constructive fraud'.

Inducing mistake about subject-matter

The subject matter of every agreement must clearly be understood by the
concerned parties. If one of the parties, leads the other, even innocently, to
commit a mistake regarding the nature or quality of the subject-matter, it is
considered misrepresentation.

Essentials of Misrepresentation
1. The representation should be made innocently, honestly believing it to be
true and without the intention of deceiving the other party.
2. Misrepresentation should be of facts material to the contract. A mere
expression of one's opinion is not a statement of facts.
3. The representation must be untrue, but the person making it should
honestly believe it to be true.
4. The representation must be made with a view to inducing the other party to
enter into contract and the other party must have acted on the faith of the!
representation. A party cannot complain of misrepresentation if he had the
means of discovering the truth with ordinary diligence.
5. The false representation must have been made by one party to the contract
to the other who is misled. If it is not addressed to the party who is misled,
then it is not misrepresentation.

Effect of Misrepresentation
Section 19 of Contract Act provides that when consent to an agreement is
caused by misrepresentation, the agreement is voidable at the option of the
party whose consent was so caused.

Thus, the aggrieved party has the following two rights:

1. He can rescind the contract. This right is available only in such cases where he
was not in a position to discover the truth with ordinary diligence.
2. If the aggrieved party thinks it proper, he may accept the contract and insist upon
its performance. He may compel the other party to pay damages.
You have seen that the party whose consent was caused by misrepresentation can
avoid or rescind the contract.
However, this right is lost in the following cases:
1. If he could discover the truth with ordinary diligence.
2. If his consent is not induced by misrepresentation.
3. If he, after coming to know about the misrepresentation, expressly affirms the
contract or acts in such a manner which shows that he has accepted it.
4. If, before the contract is rescinded, the third party acquires some right in the
subject-matter in good faith and for some consideration.
5. If the parties cannot be restored to their original position

Difference between Fraud and Misrepresentation

FRAUD MISREPRESENTATION

Common Law Fraudulent - Negligent

Position Misrepresentation Misrepresentation
- Innocent Misrepresentation

Intention Intention to defraud - No intention to

Maker does not believe defraud(negligent/innocent)
the statement he made - Maker believe the
is true statement he made is true
Malaysia position S.17 of Contracts Act S.18 of Contracts Act 1950
1950

Q. Explain the effect of mistake on an agreement, in detail with the help of

adequate case laws.

Mistake
Mistake may be defined as the erroneous belief concerning something. Whenever an
agreement is made under a mistake, there is no consent, and the agreement is not
valid. Broadly speaking, Mistake may be of two types-mistake of law and mistake of
fact. Mistake of law can be further classified into (a) mistake of Indian law, and (b)
mistake of foreign law.

Similarly, mistake of fact can be (a) bilateral mistake or (b) unilateral mistake.

Mistake of Law (Section 21)

Mistake of law can be further classified into (a) mistake of Indian law, and
(b) mistake of foreign law.

Mistake of Indian Law

The general rule is that mistake of law of the land is no excuse. Section 21 lays
down that a contract is not voidable because it was caused by a mistake as to any
law in force in India. It is because everyone is supposed to know the law of the
country and if a person does not know the law of his country, then he must suffer the
consequences.

Mistake of Foreign Law

A person is supposed to know the laws of his country but he cannot be expected to
know the laws of other countries. Therefore, the rule that 'ignorance of law is no
excuse' cannot be applied to foreign law. A mistake of foreign law is treated as a
mistake of fact.

Mistake of Fact (Section 20)

Mistake of fact may be classified into two groups. Viz., (a) Bilateral mistake, and
(b) Unilateral mistake.

Bilateral Mistake
When both the parties to an agreement are under a mistake of fact essential to the
agreement, the mistake is known as bilateral mistake of fact. In such a situation,
there is no agreement at all because there is complete absence of consent.
Section 20 of the Act provides where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement, the agreement is void.
Thus, for declaring an agreement void under this Section, the following three
conditions must be satisfied.
Both the parties must be under a mistake
The mistake must be mutual. For example, A, having two cars, one Fiat and another
Maruti, offers to sell his Fiat car to B and B not knowing that A has two cars, thinks of
the Maruti car and- agrees to buy it. In this case, there is no consent whatsoever.
Therefore, the agreement shall be void.

Mistake must be of fact and not of law

Mistake must relate to as essential fact: The mistake must relate to a matter of fact
which is essential to the agreement. In other words, only such mistake of fact that
goes to the root of the agreement, renders the agreement void. For example, A
agrees to buy from B a certain horse. It turns out that the horse was dead at the time
of the bargain, though neither party was aware of the fact. The agreement is void,
because the mistake relates to something i.e., the horse, which is essential to the
contract.

A bilateral mistake may be:-

1. Mistake as to the subject-matter
2. Mistake as to the possibility of performance

Mistake as to the subject-matter

When both the parties are under a mistake regarding the existence of the subject-
matter, the agreement is void.
For example; A agrees to sell to B a specific cargo of goods supposed to be on its
way from England to Bombay. It turns out that, before the day of the bargain, the
ship carrying the cargo had been cast away and the goods lost. Neither the party
was aware of these facts. The agreement is void.
Mistake as to the identity of subject-matter
Where the parties to a contract have different subject-matter in their minds i.e., one
party had one thing in mind and the other party had another, the agreement is void
because there is no consensus-ad-idem.
For example, A offers to sell his old Delhi house to B. A had another house in South
Delhi. B thinks he is buying the South Delhi's house. There is no agreement between
A and B.
Mistake as to the title of the subject-matter
Sometimes the buyer already owns the property which a person wants to sell to him,
but the concerned parties are not aware of this fact. In such a case, the agreement is
void as there is a mistake about the title of the subject-matter.
Mistake as to the quantity of the subject-matter
Where both the seller and the buyer make a mistake regarding the quantity of the
subject matter, the agreement is void. In the case of Henked v. Pape, P inquired
about the price of rifles from H suggesting that he might buy fifty rifles. On receiving
the quotation, P telegraphed “send three rifles”. But. because of the mistake of the
telegraph authorities, the message transmitted was “send the rifles” H despatched
fifty rifles. P accepted three rifles and returned the remaining forty-seven rifles. It was
held that there was no contract. However, P was liable to pay for three rifles on the
basis of an implied contract.
Mistake as to the quality of the subject-matter
If the subject-matter is something essentially different from what the parties thought
it to be, the agreement is void. For example, A contracts to sell a particular horse to
B. A and B believe it to be, a race horse. But it turns to be a cart horse. The
agreement is void.
Mistake as to the price of the subject-matter
Where there is a mutual mistake as to the price of the subject-matter, the agreement
is void. For example, where a seller of certain goods mentioned in his letter the price
as Rs. 1,250 when he really intended to write Rs. 2,250, the agreement is void. An
erroneous opinion as to the value of the thing which forms the subject-matter of the
agreement is not treated as a mistake of fact.

Mistake as to tire possibility of performance

If the parties to an agreement believe that the contract is capable of performance,
while in fact it is not so, the agreement is treated as void or the ground of
impossibility. It may be a physical impossibility or a legal impossibility.

1. Physical impossibility: A contract for the hiring of a room for witnessing the
coronation procession of Edward VII was held to be void because unknown to the
parties the procession had already been cancelled and there is no question of
witnessing it. (Grifdth v Esymsr)

2. Legal impossibility: An agreement is void if it provides that something shall be

done which cannot legally be done.

Unilateral Mistake

The term 'unilateral mistake' means where only one party to the agreement is under
a mistake. Generally, a unilateral mistake does not make the agreement void.
According to Section 22, a contract is not voidable merely because it was caused by
one of the parties to it being under a mistake as to a matter of fact. If a man due to
his own negligence or lack of reasonable care does not ascertain what he is
contracting about, he must bear the consequences.

For example, A sold oats to B by sample and thinking that they were old oats,
purchased them. In fact, the oats were new. It was held that B was bound by the
contract, (Smith v. Hughes). In some cases, however, a unilateral mistake may be
fundamental and may affect the character of the contract. In such a situation, the
agreement is void. In the following cases, even though the mistake is unilateral, the
agreement is void.

Mistake as to the nature of the contract

A contract is void when one of the parties, without any fault of his own, makes a
mistake as to the very nature of the contract. Thus, when a person is induced to sign
a written document containing a contract fundamentally different in nature from what
he thinks he is signing, the contract shall be void.

In the case of Foster v. Mackinnon, an old illiterate man was induced to sign a bill
of exchange, by means of a false representation that it was a mere guarantee. Held,
he is not liable for the bill as he never intended to sign a bill of exchange.
Effect of Mistake

The effect of each type of mistake can now be summarized as follows:

1. Where both the parties to an agreement are under a mistake as to a matter-of-fact

essential to the agreement, the agreement is void.

2. In most cases of unilateral mistake, the contract is not void. But, where unilateral
mistake defeats the true consent of the parties, the agreement is treated as void.

3. Any person who has received any advantage under such agreement, he is bound
to restore it, or to make compensation for it, to the person from whom he had
received it.

4. A person to whom money has been paid or anything delivered by mistake must
repay or return it.

Q. Define Quasi-Contracts and explain different kinds of Quasi-Contracts

Introduction

Chapter -V, Section 68 to Section 72 of the Indian Contract Act, 1872 speaks
about "Quasi-Contract or Certain relations resembling those created by
contracts. These relations resembling contract are known as contract implied in-law
or a quasi-contract. It is not real contract or as it is called, a consensual contract
based on the agreement of the parties. These obligations come into existence by a
fiction of law.

Meaning and Definition of Quasi-Contract

Quasi Contract is based on the principle of equity. That "A person shall not be
allowed to enrich himself unjustly at the expense of another. It means one
should not accept or receive any benefit unjustly.

The Indian contract Act, 1872 does not define quasi contract, it calls them relation
resembling those of contracts. However, a quasi-contract may be defined as, “a
transaction in which there is no contract between the parties; the law creates certain
rights and obligation between them which are similar to those created by a contract.
The term Quasi Contract is derived from the Roman Law “Obligatio quasiex
contractu". Quasi Contract is not real Contract entered into by parties
intentionally. “It is an obligation created by law for the sake of justice; specifically., an
obligation imposed by law on parties because of relationship between parties or
because one of them would otherwise be unjustly enriched. It’s not a
contract, but instead is a remedy that allows plaintiff to recover a
benefit conferred on the defendant” Black Law Dictionary Definition

Example - XYZ leaves his wristwatch at ABC's house by mistake. Here ABC has
Quasi-contractual obligation to return it to XYZ.

Requirement

There are many situations where, even though a party has not breached
a contract or had not committed a tort, yet he is required to perform obligations
towards another party. A classic example is a situation where certain goods are
delivered to a person by mistake. In such a situation, the person to whom the goods
are delivered is supposed to either return the goods to the person who had sent the
goods to him by mistake and keep the goods in good condition till such time that
they are returned. In case the person, to whom the goods were
delivered by mistake, has consumed the goods, then he shall be liable to pay for the
goods even though he had not placed an order for them.

Note - Generally, in a contract, obligations are created on the parties out of an

agreement but in these type of contracts (quasi-contracts) obligations are created on
the parties without any agreement.

Features of a Quasi Contract

1. It is usually a right to money and is generally (not always) to a liquated sum of

money

2. The right is not an outcome of an agreement but is imposed by law

.3. The right is not available against everyone in the world but only against a specific
person(s). Hence it resembles a contractual right.

Kinds of Quasi Contracts

Section 68 to Section 72 of the Indian Contract Act, 1872 deals with Five Kinds of
Quasi-Contract which are as follows:

1) Claim for necessaries supplied to person incapable of contracting, or on

his account (Section 68) “If a person, incapable of entering into a contract, or
anyone whom he is legally bound to support, is supplied by another person with
necessaries suited to his condition in life, the person who has furnished such
supplies is entitled to be reimbursed from the property of such incapable
person.

Illustrations: -

(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. Ais
entitled to be reimbursed from B’s property.

(b) A supply the wife and children of B, a lunatic, with necessaries suitable to their
condition in life. A is entitled to be reimbursed from B’s property.

2) Reimbursement of person paying money due by another, in payment of

which he is interested (Section 69) - A person who is interested in the
payment of money which another is bound by law to pay, and who therefore pays it,
is entitled to be reimbursed by the other.

Illustration: -

B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable
by A to the Government being in arrear, his land is advertised for sale by the
Government. Under the revenue law, the consequence of such sale will be the
annulment of B’s lease. B to prevent the sale and the consequent
annulment of his own lease pays the Government the sum due from A.
A is bound to make good to B the amount so paid.

3) Obligation of person enjoying benefit of non-gratuitous act (Section 70)

Where a person lawfully does anything for another person, or delivers anything to
him, not intending to do so gratuitously, and such another person enjoys the benefit
thereof, the letter is bound to make compensation to the former in respect of, or
to restore, the thing so done or delivered
4) Responsibility of finder of goods (Section 71) - A person who finds
goods belonging to another, and takes them into his custody, is subject to the same
responsibility as a bailee.

5) Liability of person to whom money is paid, or thing delivered, by

mistake or under coercion (Section 72) - A person to whom money has
been paid, or anything delivered, by mistake or under coercion, must repay or
return it.

Illustrations: -

(a) A and B jointly owe 100 rupees to C, A alone pays the amount to C, and B, not
knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount
to B.

(b) A railway company refuses to deliver up certain goods to the consignee except
upon the payment of an illegal charge for carriage. The consignee pays the sum
charged in order to obtain the goods. He is entitled to recover so much of the charge
as was illegal and excessive

Q. Difference between wagering and contingent contract

Wagering Agreement

Wager means bet or gamble. It is an agreement between two people where one
person is win/gain and another person is loss/give. It is a void agreement and it can’t
support any law. It is full of uncertainty. It is also called reciprocal and there have no
consideration.

Example: In the FIFA world Cup final match there are Two team Brazil and
Argentina. Mr. X is Brazil and Mr. Y is Argentina. They get an agreement that if Brazil
wins against Argentina, then Mr. Y will pay BDT 10000 to Mr. X otherwise Mr. X will
pay the same to Mr. Y. It is a wagering agreement. Because the event for which the
agreement is done is uncertain. No party has control over the event. One party will
win on the loss of another party. It contains reciprocal promises.

Contingent Contract
In this contract two parties are getting benefitted. It is a certain contract and there
have a condition/consideration. It is a valid agreement. In this contract when certain
condition occurs then the promisor performs his obligation.

Under section 31 of the Indian Contract Act, 1872, contingent contract is defined as
follows: “If two or more parties enter into a contract to do or not do something, if an
event which is collateral to the contract does or doesn’t happen, then it is a
contingent contract.”

Example: - In a Fire insurance contract, the insurer pays a certain amount if the
insured property damage and losses caused by fire under certain conditions. The
insurer is not called into action until the event of the damages happens. This is a
contingent contract

Particulars Contingent Contract Wagering Contract

Meaning It means to do or not to It means bet or gamble
do something
Contract or not? A void agreement is It is a valid agreement.
invalid from the beginning So, it is Contract.
of a contract. So, it can’t
be a contract
Defined in Under section 31 of the It can’t be defined any law
Indian Contract Act, 1872
Compensation As it is a contract and As there is no contract,
defined by law. So there is no compensation.
absolutely there have
compensation and also
have a consideration.
Types It is conditional with It is reciprocal without
consideration. consideration.
Who gets the Both the parties (offeror Only one Party. (If he/she
beneficial? and offeree). won the gamble
industrial development
these kind of contract has
become common and are
executed in large numbers
now a days. This had led
to demand of formulation
of fledge rules on standard
form of contract to protect
the rights of the weaker
party in standard form of
contract.
However, in many
countries judiciary is
empowered to apply
the
principle of natural justice
and give good justice to
the weaker party as it is in
Israel there are certain
provisions that may be
cancelled by court of law.
Apart
from courts some
legislature have also
made laws related to
this kind of
contract. There are certain
rules made by the
legislature which seems to
be
unreasonable like in U.K,
sec 3 of Unfair Contract
Terms Act 1977 limits the
ability of drafter on
consumer or limits the
provision of standard
form of
contract to the Drafter